Fixed Income Investments – Characteristics & Best Fixed Income Plans

Updated on: Jun 6th, 2024


6 min read

Fixed Income Investments are those that offer a stream of return on a fixed schedule. The amount of the payout could vary though. One of the most common forms of this kind of investment is individual bonds. This category also includes the likes of bond funds,  Post Office Savings Schemes, Company Deposit, Certificate of Deposit, exchange-traded funds (ETF) and money market funds.

Latest Update

RBI has announced a new rule applicable to unclaimed, matured FD accounts. That is the funds in an unclaimed, matured FD account will attract an interest rate as applicable to the savings account or the contracted rate of the matured FD, whichever is lower.


Fixed Income Investments offer a fixed rate of return with the interest getting accumulated over a predetermined period of time. These can be used by investors to diversify their portfolio given these are not as risky as derivatives and equities. Because the returns in fixed income investments are reliable, it is particularly popular amongst the retired investors.

What comprises Fixed Income Investment?

It is important to understand that fixed income funds are not a different category of funds in the mutual funds domain. Their identity is defined by their investment style and expected returns. Some common fixed income generating products are:

Exchange Traded Funds

These are funds that are listed and traded on the stock exchanges. Nifty, S&P, BSE Sensex are some of the indexes these funds associate with. ETFs can be traded in the cash market on a day to day to basis with Gold ETF being one of the popular choices among its offerings.

Debt Funds

Debt funds invest in safer instruments like government bonds, corporate bonds and related securities. These are low risk, low return, stable investment platform that do not invest in volatile stock markets.

Money Market Funds

Investment in money market funds take the direct brunt of any increase in interest rates and are therefore best suited for short periods investment like upto 90 days. They generate a steady income and include commercial papers, short term certificates of deposits, banker’s acceptance, etc.

Characteristics of Fixed Income Investment Funds

Fixed Income Investment Funds

a. The taxes imposed on fixed income funds are for debt funds with short term capital gains being added to your income and taxed based on the tax slab. The long term gains are taxed at 10 percent without indexation and 20 percent with indexation.

b. The focus of fixed income investment is not as much capital appreciation as generating a fixed income to the investor.

c. In fixed income investments, debt funds offer a better return than money market funds in the long run, but it is ETFs which garner more profit with their equity like functioning.

d. These are actively managed by fund managers who regularly adjust the portfolio to manage the portfolio in line with the changes in the interest rates and the economic conditions.

e. Being highly liquid in nature, these can be accessed by the investor and withdrawn whenever they require.

f. The aim of the fund is to keep the returns stable in the face of market fluctuations and adverse economic conditions.  

What are some of the best Government Fixed Income Investment options available in India?

Since the focus of Fixed Income Investments is primarily Safety, Liquidity and Returns, we have shortlisted schemes that are offered by the Government of India or PSUs.  

Public Provident Fund

This is one of the more popular schemes for long term investment that is backed by the Government of India. It has attractive interest rates that are also fully tax exempt. The investment duration is for 15 years with the option to extend the same in blocks of five years. There is taxation benefit under Section 80C of the Income Tax Act where interest is tax free. The maximum investment amount in a year is INR 1.5 lakh.

Voluntary Provident Fund

Another fixed income investment option is the Voluntary Provident Fund that is but the contribution towards the provident fund account by the employee. This is a good option for risk averse investors to accumulate long term wealth.

Listed PSU Bonds

These are bonds that are issued Government backed entities and have very low risk of defaulting. The income generated by means of interest on these bonds is completely exempt from Income Tax. The capital gains, in case of any, are, however, taxable.

Senior Citizen savings Scheme

This is a good bet for investors over the age of 60, low tax bracket, and seek a regular stream of income. The time frame for this investment is 5 years which can be further extended by another 3 years. A maximum of INR 15 lakh is allowed as investment.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

The PMVVY, implemented through the Life Insurance Corporation of India (LIC) is an avenue to provide social security to the elderly aged 60 and over, from future fall in their interest income caused by adverse economic conditions. The investment limit for the same was extended from the earlier INR 7.5 lakh to INR 15 lakh this year.  The good thing about this plan is that it offers assured pension based on the rate of return which is guaranteed at 8 percent per annum for 10 years.

Sukanya Samriddhi Yojana (SSY)

The is a small deposit scheme that was launched as part of the campaign “Beti Bachao Beti Padhao” and is meant for the girl child. It currently offers an interest rate of 8.1 percent with income tax benefits. The scheme can be availed for your daughter anytime between her birth till the time she turns 10. The minimum deposit amount for the scheme is INR 1000, with the upper limit set at INT 1.5 lakhs during the ongoing financial year. The account can remain operative for 21 years from the date of opening or till the time of the girls marriage post 18 years.

Other Fixed Income Investment Avenues in India

As of June 2018, listed below are some of the Fixed Income Investment Options available to investors.

  • Post office Recurring Deposit
  • Post-Office Monthly Income Scheme
  • Post-Office Time Deposit
  • Savings Bank Account
  • Bank Recurring Deposits
  • Bank Fixed Deposits
  • Public Provident Fund (PPF)
  • RBI 7.75% Savings Bonds
  • Sukanya Samriddhi Yojana
  • Pradhan Mantri Vaya Vandana Yojana
  • Senior Citizens Savings Scheme
  • Kisan Vikas Patra (KVP)
  • National Savings Certificate (NSC)
  • Life Insurance
  • Health and Other Related Insurance
  • NPS & Atal Pension Yojana
  • Pension and Annuity
  • Sovereign Gold Schemes
  • Stocks and Equity
  • Capital Gains Tax Exemption Bonds or 54 EC Bonds
  • Mutual Funds
  • Company Deposits
  • Income-Tax Planning
  • Tax-Saving Strategies
  • Investing for NRIs

Investing in mutual funds are subject to market risk and require careful consideration before investing. Visit ClearTax for further details on Mutual Funds where we have handpicked funds for every risk profile.  

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